Wednesday, October 8, 2014

We have covered the "capitalism" part, that is, the principle of the means of production being in the hands of individuals instead of government. There is much to add to this since we have seen the downfall of Soviet socialism, but that would take us far afield. We will now turn to the "free-market" part of our discussion. (If you have not read part one, you might want to do so first.)

We should not take it for granted that all forms of capitalism include a free market. To see what I mean by this I will compare them to another form of capitalism, 'crony capitalism'. But, first, I need to explain what a free market is.

A free market is where there are free exchanges. (This is not a tautology, but simply breaking down the free market to its smallest component. The relationship between free exchange and a free market is like the relationship between weather and climate. Weather is not climate, but if you take all the weather over a long period of time, you get climate. Free exchanges, performed at all times and by all people in a society, constitutes a free market.) A free exchange is where two individuals or entities exchange goods and services for money or other goods and services. Nobody is telling one side or the other what they can buy or sell or for how much.

In this kind of exchange, both sides benefit. If someone is selling widgets for $2 each and I want a widget and I am willing to pay that price, then I will buy the widget for $2. I want the widget more than I want the $2 and the seller wants the $2 more than he wants the widget. Who benefits from this exchange? Both sides do. We are both better off having done the exchange. This is the essence of a free market. This kind of exchange happens over and over in a free market to the benefit of all.

The reason that these exchanges keep happening over and over is the profit motive. Some are confused about what profit is. They think it is only something that greedy, rich people have. No. Everyone has a profit motive. That's why we enter into these exchanges - so that we can benefit (profit). Profiting simply means that we benefit from the exchanges we enter into. When we do not benefit and have "buyer's remorse", then we learn not to enter into that kind of exchange again. So the free exchange mechanism is self-correcting. If one side or the other does not perceive that they will benefit from the exchange, they will not enter into it.

There are some underlying assumptions here. First of all, there is an assumption that the seller is being truthful. The seller must be truthful about his product or service or the buyer will be "ripped off". There must be "truth in advertising". Otherwise, a truly free exchange has not taken place. (This certainly accords with "thou shalt not bear false witness", does it not?)

So, both the private property part (thou shalt not steal) and the free exchange part (thou shalt bear false witness) seem to suggest that we are going in the right direction. Another thing it does is dispel the notion that the free market (called the 'unfettered market' by its opponents) is darwinian. Let me explain. A free market is not like the jungle. In the jungle the strongest and swiftest and keenest survive while the others perish. Exchanges as such generally do not occur though some form of symbiosis might. Someone stronger or faster eats you or eats what you want to eat. In a system of free exchange, the rule of law is necessary to keep the strong from oppressing the weak. First is the enforcement of property rights and the second is the truth about the product or service being offered. Being dishonest means that people will not want to deal with you in the future. Dishonesty undermines the free market.

Another thing that is antithetical to free markets are monopolies. When one person or elite, colluding group has complete control of part of the market, it results in higher prices, scarcity and lower quality. (I will not go into how this works as it would take some space to explain. So, I am just stating it. Please understand that what I am saying is not disputed by any economist no matter how liberal or conservative.) This means that to buy certain goods and services one must deal with only one entity. Nobody competes with them so they can charge more and will have no incentive to improve that good or service. This will cause lower productivity and therefore more poverty. (Increases in income in a society can only come by increases in productivity.)

One of the worst forms of monopolistic capitalism (and perhaps the only form) is "Crony Capitalism". This is where the government, often run by a dictator but not necessarily so, gives monopoly powers to certain individuals and companies. The monopolist supports the dictator, making him rich, and the dictator gives a monopoly to his friend, making him rich. This is a form of capitalism because individuals own the means of production, but it is not free-market because the two true beneficiaries are not the ones making the exchange, but the ones who made any other exchanges impossible. A free market requires competition. Competition requires a free market.

I could go on and on about countries like Argentina and the Philippines who were economically ruined by crony capitalism, but we must get back to our original question: Is free-market capitalism biblical? I think that we have shown that capitalism is biblical and that its opposite, socialism, is not. I am not sure that the Bible can truly be said to mandate a particular kind of capitalism, though we seem to find nothing but free exchange in the Bible.

But I am not ready to give up on it yet. The Bible does not just teach what is right and wrong, but also what is wise and what is foolish. We can study books like Proverbs and learn a lot about how we can live good and productive lives including our economic lives. So I think it is not a stretch to say that free-market capitalism is best in the sense that it is the wisest, in general, of all the alternatives. It is a little hard, in this little blog space, to fully explore why free market capitalism is the wisest choice, but I will toss out an idea.

Why not look at what is happening in the world where different systems compete with each other. In Europe, they have less of a free market than in the US and in Hong Kong they have more of a free market. What is the practical result? Hong Kong, both before and after China regained control of it, has maintained the freest market in the world. It has the most growth of any developed nation with the greatest freedom. Europe, which has many restrictions on the market, has a much slower growth rate than either Hong Kong or the US. The US is in the middle, both in freedom and in growth.The European Union has grown an average of 1% in GDP and has added only four million jobs over the past 35 years. The US has grown an average of 3% of GDP and has added, despite its current employment difficulties, 40 million jobs over the past 35 years. Hong Kong has grown an average of 10% per year though being small it could not produce millions of jobs. (I have had some discussions along this line that resulting in my opponents questioning whether or not growth is a good thing. I just shake my head at things like that. An economy will naturally grow if for no other reason than babies keep being born and these babies grow up and want jobs and spend money. Shrinking economies are called depression economies. They hurt the poor the very most while making all but a very few worse off.)

So which way should we go? Should we be more like Europe as some suggest? Some think our society would be more just if we were like them. They have more mandated time off and benefits and the government pays for most health care. (They do not have better or more accessible health care, by the way.) But do we want our growth to just about grind to a halt? (It seems to have done that with what has happened recently but it is not a permanent condition.) It seems to me that the wiser, and more just thing, would be to go toward more freedom.

The book of Proverbs itself is about making choices. We can make wise choices and we can make foolish ones. What I think is really unbiblical is to take choices (free markets) away. We know that the biggest choices that we make are not economic or financial. The biggest choice we make is whether or not we accept Jesus as Lord and Savior. It determines our eternal destiny. Sadly, many will make the foolish choice.

God took quite a risk in creating us with free wills. We live in a risky world. God could have made the world safe by not giving us any choices. But He wanted us to make choices. He wanted us to freely choose or reject Him. It seems to me that if He gave us that kind of choice that He would want us to have free markets. No, it's not as important, but it is better than the "nanny state" that takes care of us and tells us what we can or cannot do. I do not think that God approves of that.

I just want to add a couple of more examples of property rights and what they can mean. We can extend property rights to include things like intellectual property, treating them as a form of capital.

In past centuries, musical artists, even very successful ones, had trouble getting much out of their works. There was not such thing as intellectual property. The composer, like Mozart or Bach, would have to hold on to their works or others could use them freely. So they have to perform them in order to profit. They could have made a fortune if they had enforceable intellectual property rights to their works. Also, they might have produced a lot more of them since they would have to worry less about performing them and more about writing them. Generations have enjoyed, and even profited, from their works, but they did not.

Another area of property rights that could be extended in much of the world is in mineral rights. In the US, individuals who own property also own the mineral rights to them. So they have a great incentive in having things like oil, coal and natural gas coming out of their land. In most of the world, these rights belong to the government and so there is no incentive to use these God-given resources. They stay in the ground. We have had an oil/natural gas boom in this country in the past few years and we are almost outproducing the Saudis. Methinks this is a very good thing not to be dependent on the Middle East for our power.

God put these things in the ground so that we could use them. The Bible indicates that the land belongs to the people and not the government (though the government must, of necessity, own some land.) The solutions to some of our problems, including things like pollution, can come from the wise extensions and assignment of property rights. We need to strengthen not weaken them.

Thursday, October 2, 2014

I do not usually discuss issues like this in this blog, but I do want to share my thoughts on the Bible and Free-Market Capitalism because I have degrees in, and interest in, both economics and theology. In this I am like James D. G. Dunn and Andreas Kostenberger, though the similarity may end there.

Anyway, I often have thought that seminaries ought to teach some basic economics since I hear not a little nonsense coming out of some seminary-trained ministers. And I do not mean that it is simply that I disagree with their conclusions, but that they betray a poor understanding of how economies and markets work. In fact, I could do several posts just about some of the poor assumptions and analysis in this regard, but for now I will (try) to restrict myself to what the Bible may, or may not, say about our own economic system.

The above question could be simply be answered "no, the Bible does not explicitly say that free-market capitalism is the right or the best system" since there was no such thing as capitalism in that day and the Bible does not prophesy that it would come into being. With that being stated, we can still examine whether our economic system meets certain biblical standards.

The first question that we would ask an economist is "what is capitalism?". Capitalism is, simply, the private ownership of the means of production. In an agricultural society, the means of production was the land. The vast majority of society were farmers and they needed land to grow crops and tend animals. In an industrial society, far fewer farmers are needed as technology has made it possible to produce far more crops on less land and with fewer people.

Since the Bible was obviously written in the agricultural age with capital goods playing a relatively minor role, we would expect that the Law of Moses, which gave the Israelites laws about how to govern their society, should tell us how an agricultural society should act justly. But we also might find principles that would apply to our own situation. That is what I will attempt in the these next few posts.

The two basic systems in our day are capitalism and socialism. Capitalism is the private ownership and control of the means of production; Socialism is the public ownership and control of the means of production. Which one does the Bible support - if any?

First of all, does the Bible teach private property rights? The answer is emphatically, yes! One on the ten commandments says, "Thou shalt not steal". A person cannot steal if nobody owns it. One could complain that terms like "property rights" do not appear in the Bible, but neither does the expression, "free will", but both are biblical concepts. God holds us accountable for our choices, so that implies that we can choose freely despite what my Calvinist friends might say. Likewise, the fact that the Bible says that we should not steal implies that we have property rights.

The question, then, is does the Bible teach that the means of production should be privately owned. Well, in the Bible who owned the land (the means of production)? The people owned the land. Now this may not seem like a big deal since we are accustomed to owning land, but in that day it was not simply a place to live and have a house, but it was the families' way of making a living. In fact, the Law of Moses gave the people the right only to sell their family's land only for a period of time before it must be returned to the original family. So the family's right to the property was actually stronger for them than it is in America today.

In 1 Kings 21, we read of how King Ahab desired the vineyard of Naboth. He was sad because Naboth did not want to give up his family's land. Jezebel, who was Canaanite, could not believe that a king could be refused by one of his subjects. In her native country, the king could take any land he pleased. So Jezebel falsely accused Naboth and had him stoned. Then she seized his land and gave it to Ahab. We need to notice something here. Even Ahab, a wicked Israelite king, did not presume to take land belonging to another without their consent. Unlike Jezebel, he knew that Naboth had a right to keep his land and do with it as he pleased. And notice that the land was productive as well. The means of production was in private hands.

Let's look at some examples in our own time: Argentina and the Lakota Indian Reservation. Argentina has struggled economically for the past fifty years. The IMF (that's the International Monetary Fund not the one from Mission Impossible) helps countries get their act together economically. They have worked with Argentina over and over to give them a better economy. They do what is suggested to them, but they always falter.

This is well known by economists, but the IMF cannot fix the main factor in their continuing failure - secure property rights. Many people do not know that a hundred years ago Argentina was the tenth leading economy in the world. Then, in the 1950s, the Perons came to power and undermined property rights. They took what belonged to others and gave it to friends. Even today, their courts will easily take away property on the smallest of pretexts. That means that corporations will not invest in factories, etc., that would help them to become strong economically once more. Until that is fixed, Argentina will continue to flounder.

Another example of this is our Indian reservations. Just before a friend of mine moved to South Dakota to do mission work on the Lakota Indian Reservation, I read an article which studied their economic problems. It is just about the poorest place in our country. Why? Because the reservation does not ensure individual private property rights for land. The reservations are self-governing. They are not a democracy. Traditionally, the chiefs make decisions such as what can be done on any property on the reservation. This is their custom and culture.

Their culture, where property is controlled by the chiefs and not individuals, is keeping them in abject poverty. In the nineties, Gateway Computers wanted to build their computers on the reservation, providing jobs for thousands of Indians. They couldn't do it because they would not have secure rights to the land. They could purchase the land and then the chiefs could take it back whenever they pleased. Nobody is going to invest in that kind of situation. An individual who wants to run even a convenience store cannot do so because they might run afoul of the chiefs. Of course, the chiefs take the money that our government gives them and they build themselves real nice homes. They drive real nice vehicles and they eat sumptuously. The people scrape by and are often cold and starving.

Okay, I have gone beyond the biblical text and given some examples that I hope will help us see that not only does the Bible support the private ownership of the means of production, but show that the lack of property rights hinders economic growth and can even cause oppression. In the latter case, it should be clear to us that that is unbiblical.

So we can see that without property rights there is no prosperity. I could rail against the injustices of the chiefs, but that is not our purpose here. Our purpose is to see whether free-market capitalism is biblical. I think that we have shown, so far, that at least the capitalism part is biblical.